Maturity assessment insurance China report by daxue consulting and Asian risks

1. TO ACCESS MORE INFORMATION ON THE KOL ECONOMYIN CHINA, PLEASE CONTACT DX@DAXUECONSULTING.COM dx@daxueconsulting.com +86 (21) 5386 0380 Maturity assessment of China’s insurance market November 2020 HONG KONG | BEIJING | SHANGHAI www.daxueconsulting.com

4. © 2020 DAXUE CONSULTING – ASIAN RISKS MANAGEMENT SERVICES ALL RIGHTS RESERVED Life insurance in China: The growth has slowed 4 China Life 22.3% Ping An 13.9% China Pacific Insurance 6.8% New China Life Insurance 4.5% China Taiping 4.4% Taikang 4.3% Foresea Life Insurance 3.9% PICC 3.8% Others 36.1% Market share of life insurance in China by premium income (2020 January - April) Source: EY, China banking and insurance regulatory commission, designed by daxue consulting The growth of China’s life insurance premium slowed down due to China’s Banking and Insurance Regulatory Commission limiting the aggressive sales of universal life policies. China’s life insurance market is dominated by a few large players. However, in 2020, China’s Banking and Insurance Regulatory Commission has allowed foreign investors to raise their stakes in Chinese life insurance companies to 100%, which makes Chinese insurance companies face more competition from foreign players. Premium income refers to what insurance companies collect from insurance policies sold. 1,744.2 2,145.5 2,072.2 2,275.4 2016 2017 2018 2019 Premium income of life insurance in China (billion RMB)

5. © 2020 DAXUE CONSULTING – ASIAN RISKS MANAGEMENT SERVICES ALL RIGHTS RESERVED Life insurance in China has unbalanced regional development China’s life insurance sales are closely related to the population and economic development. 5 No. Province Premium income Market share 1 Guangdong 254.5 billion RMB 9.34% 2 Jiangsu 245.8 billion RMB 9.02% 3 Shandong 189.9 billion RMB 6.97% 4 Henan 176.6 billion RMB 6.48% 5 Sichuan 146.6 billion RMB 5.38% 6 Beijing 137.1 billion RMB 5.03% 2 1 4 3 5 6 Source: China banking and insurance regulatory commission, designed by daxue consulting Jiangsu Beijing Shandong Guangdong Sichuan The TOP 6 regions by life insurance premium income (2018) Henan  Guangdong, Jiangsu and Shandong are leading regions with market share exceeding 25%.  Life insurance sales mainly came from eastern and southern coastal areas, and inland provinces with large population.Source: China banking and insurance regulatory commission, designed by daxue consulting

6. © 2020 DAXUE CONSULTING – ASIAN RISKS MANAGEMENT SERVICES ALL RIGHTS RESERVED Accident insurance: COVID-19 caused the first drop in 5 years 6 31.0 37.1 43.6 75.0 90.1 107.6 117.5 60.0 2013 2014 2015 2016 2017 2018 2019 2020.01-06 Total premium income of accidental insurance in China (billion RMB) Source: China banking and insurance regulatory commission, designed by daxue consulting In the first half of 2020, the premium income decreased by 6.8% compared to 2019H1, which was the first time it turned negative in past 5 years. Before 2020, the accidental insurance market in China grew consistently as financial security and health awareness were on the rise. COVID-19 had seriously influenced sales in the first half of 2020. Online channels could not make up for offline sales agents’ lost sales and have not yet earned the trust from older insurance customers.

7. © 2020 DAXUE CONSULTING – ASIAN RISKS MANAGEMENT SERVICES ALL RIGHTS RESERVED Health insurance is a promising market in China 7 Source: CBIRC, designed by daxue consulting The health insurance market shows a promising prospect driven by political support, the aging population, and increased personal health expenditures. Critical illness insurance and medical insurance are the two largest premium income sources, while long-term care insurance and disability insurance only constitute 1% of total. 112.3 158.7 241.0 404.2 438.9 544.8 706.6 2013 2014 2015 2016 2017 2018 2019 Premium income from health insurance in China (in billion RMB) +529% Growth since 2013 Source: CBIRC, insurance yearbook 2019 designed by daxue consulting 15.3% 19.0% Market share of leading players in China’s heath insurance market (2019) 64.4% 34.6% Health insurance premium structure (2019) Critical illness insurance Medical insurance Others

8. © 2020 DAXUE CONSULTING – ASIAN RISKS MANAGEMENT SERVICES ALL RIGHTS RESERVED The medical insurance market is developing continuously with a steady but high growth. However, with the proportion of the elderly population increasing, the demand is expected to further expand to make up for the limitations of social medical insurance. Medical insurance keeps a steady development 8 Source: CITIC, designed by daxue consulting 87 113.2 141.5 184.8 244.2 30.1% 25.0% 30.6% 32.1% 2015 2016 2017 2018 2019 Premium income of medical insurance in China (in billion RMB) 36.1% 28.0% 32.3% 33.9% 34.6% 63.9% 72.0% 67.7% 66.1% 65.4% 2015 2016 2017 2018 2019 Share of medical insurance in the health insurance market Medical insurance Others Proportion of the elderly population (≥65 years old) in China Growth rate 10.4% 12.6% 2015 2019 Source: CITIC, national bureau of statistics, designed by daxue consulting 143.8 million 176 million China’s elderly population is growing faster and faster, which is driving all medical and health related industries.. + 22.3%

10. © 2020 DAXUE CONSULTING – ASIAN RISKS MANAGEMENT SERVICES ALL RIGHTS RESERVED Car insurance is the main contributor to the market Overall, the Chinese property insurance market is developing steadily but due to being closely tied to car sales, was highly impacted by COVID-19. Motor insurance is the most important part of the property insurance market, taking 70.3% market share. 10 533.1 621.2 720.3 799.5 872.4 983.5 1,077.0 1,164.9 818.3 2012 2013 2014 2015 2016 2017 2018 2019 August 2020 Premium income of property insurance in China (in billion RMB) Source: Forward-The Economist, Statista, designed by daxue consulting Company property insurance 3.6% Personal insurance 0.7% Car insurance 70.3% Engineering insurance 0.9% Agricultural insurance 5.8% Others 18.7% Distribution of property insurance premium income in China by insurance type (2019)

11. © 2020 DAXUE CONSULTING – ASIAN RISKS MANAGEMENT SERVICES ALL RIGHTS RESERVED 15.1 19.5 24.2 36.2 42.2 42.4 69.1 117.4 247.4 388.0 Tianan Insurance China Export & Credit Insurance China Taiping Insurance Sunshine Insurance China United Insurance China Continent Property & Casualty Insurance China Life Insurance China Pacific Insurance Ping An insurance PICC Top property insurance companies in China by premium income (in billion RMB, 2018) High market concentration in the property insurance sector The property insurance market is relatively concentrated with PICC, Ping An, and China Pacific taking up a majority of the market. As part of an effort to make the industry more competitive, the government reduced control, emphasized greater investments in increasing transparency and exposing the companies to the demands of the market and shareholders. 11 Source: Investopedia, designed by daxue consulting The top 3 insurance companies will continue dominate the property insurance market:. • PICC, Ping An and CPIC each hold a huge network of and agents to assist customers across the country. Compared to other companies, they offer faster claim settlement services and more comprehensive insurance coverage. • PICC, Ping An and CPIC also take the leading position in motor insurance, which strengthened their claims settlement capability on the competitiveness in China. Top 3 companies Other companies

12. © 2020 DAXUE CONSULTING – ASIAN RISKS MANAGEMENT SERVICES ALL RIGHTS RESERVED The “decay” of car insurance VS. the “rise” of other property insurances Despite the fact that car insurance is still leading the market, its growth rate is slowing due to decreasing car sales, which COVID-19 dampened even further. On the flip side, other property insurance lines are on the rise. 12 400.5 472.1 551.6 619.9 683.4 752.1 783.4 818.8 546.3 17.9% 4.5% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% 2012 2013 2014 2015 2016 2017 2018 2019 Aug-20 Premium revenue from car insurance in China (in billion RMB) Premium income Growth rate 75% 76% 76% 77% 78% 76% 73% 70% 66% 25% 24% 24% 23% 22% 24% 27% 30% 34% 2012 2013 2014 2015 2016 2017 2018 2019 August 2020 Premium income structure of property insurance in China Car insurance Other property insurance Source: Northwest Securities, China banking and insurance regulatory commission, designed by daxue consulting

13. © 2020 DAXUE CONSULTING – ASIAN RISKS MANAGEMENT SERVICES ALL RIGHTS RESERVED China’s agricultural insurance has huge development potential Agricultural insurance has annual double-digit annual growth, higher than that of the industry average. Due to the extensive agricultural production area in China and high risks of natural disaster, the government has released several policies and regulations to support its development. 13 24.1 30.6 32.6 37.5 41.8 47.9 57.3 67.5 16.5% 15.9% 11.0% 9.1% 12.7% 9.5% 8.2% 2012 2013 2014 2015 2016 2017 2018 2019 Premium revenue of agricultural insurance in China (billion RMB) Premium income Growth rate of property insurance Proportion of agricultural insurance in asset insurance by premium income Source: Forward-The Economist, designed by daxue consulting 2018 5.3% 2019 5.8% August 2020 8.1%

15. © 2020 DAXUE CONSULTING – ASIAN RISKS MANAGEMENT SERVICES ALL RIGHTS RESERVED Policy support built a favorable environment for liability insurance Liability insurance applies to a wide range of fields. Due to preferential policies and increased downstream market demand, the size of China's liability insurance market has increased by 400% in eight years, from 14.8 billion RMB to 75.33 billion RMB. 15 14.8 18.38 21.66 25.33 30.18 36.24 45.14 59.09 75.33 0 100 200 300 400 500 600 700 800 2011 2012 2013 2014 2015 2016 2017 2018 2019 Chinese liability insurance premiums income (billion RMB) February 2016 January 2018 "Several Opinions on Further Strengthening the Management of Urban Planning and Construction” 《关于进一步加强城市规划建设管理工作的若干意见》: Required to implement project quality responsibility, strengthen the construction of the project quality liability insurance system, and improve the project risk prevention function. June 2019 "Opinions on Promoting the Development of Urban Safety” 《关于推进城市安全发展的意见》: Required to vigorously implement safety production liability insurance to enhance accident prevention functions. "Opinions on Promoting the Quality and Capacity Expansion of the Domestic Service Industry" 《关于促进家政服务业提质扩容的意见》： Supporting insurance companies to develop domestic service liability insurance products and encourage domestic companies to participate in employer and employee liability insurance. Source: NBS, designed by daxue consulting

16. © 2020 DAXUE CONSULTING – ASIAN RISKS MANAGEMENT SERVICES ALL RIGHTS RESERVED 62% 61% 60% 38% 39% 40% 2016 2017 2018 China’s liability insurance market share PICC, Ping An and CPIC Other companies High concentration in regional development and insurers 16 Beijing Guangdong Shanghai Jiangsu Zhejiang Source: NBS, designed by daxue consulting Source: Swiss Re, designed by daxue consulting Business is more concentrated in Beijing, Shanghai, Jiangsu, Zhejiang and Guangdong, which are all coastal areas. High market concentration: the top three insurers Ping An, PICC, CPIC took about 60% of the liability insurance during the past a few years, but the market share of small and medium size companies show growth. Geographical distribution of liability insurance sales in China (top 5 regions, 2019)

17. © 2020 DAXUE CONSULTING – ASIAN RISKS MANAGEMENT SERVICES ALL RIGHTS RESERVED Employer liability 27.3% Financial line 8.8% General liability (includes public liability) 32.3% Product liability 11.3% Others 20.3% Liability insurance market share by premiums income (2018) High coverage and limited claims are important drivers General liability and employer liability insurance account for approximately 60% of total liability insurance premium income. The former has a broader coverage while the latter one has a higher number of claims in the market compared to other types of liability insurance. 17 Source: Swiss Re, designed by daxue consulting 1 2 Characteristics of China’s liability insurance High consumption but low severity Medical malpractice and claims occur frequently. However, the severity is usually low. Limiting factors of compensation Passenger carrier insurance has a wide variety of subdivisions and types. Except for the additional compensation limits, the other limitations must also be considered: the means of transportation, transportation area, transportation risks, and the number of seats.

18. © 2020 DAXUE CONSULTING – ASIAN RISKS MANAGEMENT SERVICES ALL RIGHTS RESERVED Policy, product innovation and growing demands all bring potential With the steady growth of the traditional business, market patterns subtlety change. 18 The government encourages the use of liability insurance to deal with social disputes In January 2018, the government announced an increase in the number of industries with compulsory production safety liability insurance from four to nine and encouraged all other sectors to use production safety liability insurance to manage their risks. Traditional employer liability is the most oversized non-profitable product Employer liability insurance has high claims. However, it is one of the easiest businesses to acquire with sufficient market capacity, insureds can get coverage at low prices. The quality of the insurance coverage still has room for improvement. Product innovation will bring more business potential for product related insurance To support the development of the advanced manufacturing industry, the insurance companies have launched new materials and product insurance. These insurances are currently government-subsidized, and continued fast growth of these insurance products is expected for the next few years. Domestic financial risk is changing As a result of the misrepresentations in Chinese domestic stock market, the frequency and severity of such claims have increased significantly over the past five years. As a result of these risk trends, the demand for domestic financial insurance is expected to increase and insurers are exploring potential business opportunities. Source: Swiss Re, designed by daxue consulting

20. © 2020 DAXUE CONSULTING – ASIAN RISKS MANAGEMENT SERVICES ALL RIGHTS RESERVED Credit & guarantee insurance in China: a surging market 20 Compared to credit insurance which experienced an overall steady market, guarantee insurance unleased its huge potential in the past years. In 2019, guarantee insurance reached a premium income of 84.4 billion yuan, increasing 358.7% since 2016. 20.1 19.2 20.1 21.4 24.2 20.020.0 20.8 18.4 37.9 64.5 84.4 2014 2015 2016 2017 2018 2019 Premium income of credit & guarantee insurance in China (in billion RMB) Credit insurance Guarantee insurance The rapid rise of P2P (Peer- to-Peer) lending platforms since 2016 along with a series of supportive policies directly contributes to the spiking demand for financing guarantee insurance. Nonetheless, with high benefit payments and stricter regulation control, the growth rate of guarantee insurance market is expected to slow down within a few years. + 358.7% Source: National Bureau of Statistics, designed by daxue consulting

21. © 2020 DAXUE CONSULTING – ASIAN RISKS MANAGEMENT SERVICES ALL RIGHTS RESERVED A deeper look at the insurance market’s main overseas sector 21 40.9 42.6 48.9 58.1 61.3 2015 2016 2017 2018 2019 The insured amount of overseas investment insurance of SINOSURE (in billion USD) 363.9 375.2 412.8 481.4 486.9 21.8 22.3 23.9 23.5 11.9 2015 2016 2017 2018 2019 The insured amount of export credit insurance of SINOSURE (in billion USD) Medium and long-term Short-term Generally, the overseas investment insurance market has a stable growth. However, it is notable that the insured amount of short-term export credit insurance was halved as a direct result of the decline in exports due to the US-China trade war. Source: SINOSURE annual report 2019, designed by daxue consulting More short- term but less medium and long-term credit insurance sales due to the US- China trade war.

22. © 2020 DAXUE CONSULTING – ASIAN RISKS MANAGEMENT SERVICES ALL RIGHTS RESERVED Short-term export credit insurance, 79.8% Overseas investment insurance, 10.1% Domestic trade credit insurance, 7.9% Others, 2.2% Insured amount structure of SINOSURE (2019) Case study: China Export & Credit Insurance Corporation 22 2.7 2.9 2.1 2017 2018 2019 Premium underwritten (in billion USD) China Export & Credit Insurance Corporation (SINOSURE) is a state-funded and policy- oriented insurance company established and supported by the state in 2001 to promote China’s foreign economic and trade development and cooperation. As an independent legal person, it provides principal products including medium and long-term export credit insurance, short-term export credit insurance, overseas investment insurance, domestic trade credit insurance, etc. The premium decline in 2019 is mostly caused by the drop in short-term export credit insurance that composes the majority of the premium income. Source: SINOSURE annual report 2019, designed by daxue consulting Source: SINOSURE annual report 2019, designed by daxue consulting

24. © 2020 DAXUE CONSULTING – ASIAN RISKS MANAGEMENT SERVICES ALL RIGHTS RESERVED Insurance broker in China Entrepreneurship is associated with risks, let’s turn risks into gains 24 Asian Risks Management Services Limited (ARMS) advises corporates on insurable risks in China, individuals on medical insurance and home insurance. With a presence in Beijing and Shanghai, we provide services all over China. INDEPENDENT from any insurance providers, ARMS combines international and local expertise in the insurance industry with more than 15 years of presence in the Chinese insurance market, we act to the BEST INTERESTS of our clients. Life Insurance 人寿保险 Employee Benefits 员工福利 General Insurance 综合保险 Medical Insurance 医疗保险

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Maturity assessment insurance China report by daxue consulting and Asian risks

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Maturity assessment insurance China report by daxue consulting and Asian risks